BUSS4 - Economic Environment Notes

BUSINESS AND THE ECONOMIC ENVIRONMENTMacroeconomics ­ the study of the whole economy"Making the most efficient use of an economy's resources"Primarily concerned with: Demand and Supply Employment Rate of Interest and Inflation Exchange RateCircular Flow of Income ­ illustrates the interrelationship between the main parts ofthe macro economy. Firms receive in exchange for good and services. The revenue is used to pay workers and factors of production. Income of households is either spent or saved. The Business Cycle ­ The regular pattern of ups and downs indemand and output within an economy; boom, recession, slump recovery.The extent to which firms are affected to changes depends on the YED for the firmsproducts. Constructive industry ­ sensitive. Stable foods ­ not really affected.Possible Causes Changes in Business Confidence Irregular patterns in expenditure Confidence in the banking sectorPhases Boom ­ High levels of demand/confidence - High profits and investment - Rising costs and prices Recession ­ Falling levels of demand Little investment Spare capacity; unemployment Slump ­ Very low levels of demand Increase in the number of failing businesses

Other pages in this set

Page 2

Here's a taster:

High unemployment Recovery ­ Slow rising levels of demand Increasing confidence Increased employmentEconomic Growth"An increase in the level of economic activity ­ real gdp"Real GDP is a better measure of whether a country is getting wealthier than GDP,measured in pure monetary value.…read more

Page 3

Here's a taster:

The value of the currency falls, Exports cheap, imports dear.If the Interest Rate increased, the opposite effects would occur.Business StrategiesStrategies depend on whether the interest rate is falling or rising and the nature ofthat product (PED).Exchange Rates"The price of one country's currency in terms of another"Policies Floating ­ Exchange rate is influenced by demand and supply Fixed ­ Exchange rate is fixed against another currency ­ ERM2.…read more

Page 4

Here's a taster:

Effects of inflation Encourages borrowing ­ if interest rates are less than the rate of inflation Higher prices mean lower sales ­ PED Workers are more concerned about their wages Forecasts will be difficult to make Efficient firms survive and inefficient firms disappearBusiness StrategiesIt is important to consider the nature of the business and the products it offers.Luxury products where price isn't a major factor may able to maintain to its highprices.…read more

Page 5

Here's a taster:

The pace, scope and scale of globalisation has accelerated dramatically due to moderncommunication. Western manufacturing industry has suffered greatly due to this rapidglobalisation.International Competitiveness"The ability of firms to sell their products successfully both abroad in export marketsand at home in competition against imports"Based on price and non- price competition, they seek to improve competitiveness inorder to secure a larger market share.…read more

Page 6

Here's a taster:

BUSINESS AND THE POLITICAL ENVIRONMENTGovernment Intervention in the Economy"Governments seek to have some control over the business environment in order toachieve a range of economic objectives" ­ more predictable and fairLaissez-faire approach ­ Policy based on the belief that the free market will maximisebusiness efficiency and consumer satisfaction.…read more

Page 8

Here's a taster:

Health and Safety Legislation Health and Safety at Work Act ­ Ensure the health, safety and welfare at work of all staffThis can influence the reputation and motivation of employees.BUSINESS AND THE SOCIAL ENVIRONMENTDemographic IssuesDemographics ­ Characteristics of human population including age, gender, religion andsex. This can influence employees, markets and customers, perceived as an opportunityor a threat.…read more

Page 9

Here's a taster:

PR campaigns Change the way in which firms operate Persuade people to change ­ consumption, disposal and pollutionEthical Environment"Morals that should underpin decision making, actions and decisions that are morallycorrect"Decisions made on ethical grounds might reject the most profitable solution to greaterbenefit society.…read more

Page 10

Here's a taster:

Ethics vs. Public RelationsPublic relations ­ "activities to boost the public profiles of an organisation"Obtaining favourable publicity, however the firms have no control over its content.Good PR is the main reason for ethical behaviour, to enhance the image and generatemore goodwill.…read more